CASE STUDY #4:

Never let the “tax tail” wag the dog.

My clients were a married couple their mid-40’s.  Their main source of income was an inheritance which they used to pay for their NYC apartment, house in the Hamptons, etc.  Their investments, managed by a trust company, did not generate enough cash to pay their living expenses.  As a result, they had to liquidate some of their investments each year to make up the shortfall.  After taking the time to thoroughly understand their personal financial situation, I learned that they expected an additional substantial inheritance in approximately three years’ time.  I suggested that they liquidate all their investments and buy a portfolio of New York municipal bonds which would produce enough income to pay their living expenses, even after the payment of capital gains taxes on the sales of their stocks and bonds.  Doing so would also protect them from the volatility of the equity markets.  If they wanted more equity exposure in the future, they would have the opportunity to do so using their additional inheritance monies.  My clients decided not to implement my investment advice in 2008 because of the amount of capital gains taxes they would owe as a result of the sale of their stocks and bonds.  Because of their substantial market losses in 2008 and 2009 the couple’s lifestyle is now threatened.

Legal Disclosure:  Any tax statements contained herein are not intended to be used, and cannot be used, for the purpose of avoiding U.S. Federal, state or local tax penalties.  Nothing contained herein should be construed as offering or disseminating specific financial, retirement, state, asset protection, tax and/or legal advice.  If you require specific advice, please consult an attorney, qualified tax professional, wealth management specialist or other financial professional.